The Uruguay international is a prime target for Real Madrid coach Vanderlei Luxemburgo and has also been the subject of a £2.5 million bid from Inter Milan.

But Milan have gained first refusal on Lugano courtesy of their good relationship with Sao Paulo, which was established two years ago during the transfer of Kaka from the Brazilian giants.

Lugano is seen as a potential replacement for Jaap Stam, though Milan haven't decided if they will sign him in January or June.